How significant is Greece’s general election?

Dr Steve McCabe – Birmingham City Business School

The Greek election has huge significance. Voters there have voted for a party committed to tearing up the agreement made with the ‘troika’ of the IMF, EU and ECB (European Central Bank) that has provided an economic package of £185 billion since 2010. Greece, we should remember, suffered severe problems in the wake of the GFC (Global Financial Crisis) and its debts currently stand at 175 per cent of GDP.

However, the consequences of the bailout package have been severe. Since 2010, when it received the economic assistance from the troika, Greece’s economy has contracted by a quarter; as have wages. Pensions have been severely cut and unemployment has drastically increased to 25.5 per cent generally and particularly among the young where for 25 to 35-year-olds it stands at 50 per cent but for those leaving school is over 60 per cent.

In short, life for the majority of Greece’s citizens has become pretty miserable and, as the election has shown, any party offering change was bound to be popular.

Anti-austerity party Syriza under leader Alexis Tsipras has committed to change by ending austerity through investment and increased minimum.

The problem is that the troika may be unwilling to allow the conditions of the bailout package to be amended to allow Syriza to fulfil its promise. This might then create a situation that leads to Greece ending its membership of the EU which would undermine the dream of a united Europe; surely not in anyone’s long-term interests.

Worse, if like Iceland, Greece proved to be prosperous when freed from the burden of debt other countries might be tempted to also leave the EU.

The reaction of the money markets to the Greek election result has been negative though many commentators believe that this will be short-term and that realpolitik will prevail in that there will be compromise.

In the immediate future the Euro will continue to decline which, given that the EU is still the largest market for UK exports, makes our goods more expensive.

This is not good for us. Until there is a resolution there will be much speculation and uncertainty which undermines the EU.